The Future of Commercial Real Estate

Today’s commercial real estate is changing. The definition of “commercial real estate” can vary by industry, but usually refers to any building where business is conducted, including office buildings, shopping malls, warehouses, storage facilities, and so on. Many people are familiar with the term commercial real estate through working in an office building or owning a retail store; others may not think about it outside of watching television shows or movies set around hotels or department stores. Commercial real estate has become more than just physical structures where business is conducted; today’s commercial real estate includes the supply chain for goods sold through those structures as well as logistics operations that end up delivering those goods to consumers’ doorsteps. With the rise of e-commerce sales now outstripping sales at traditional brick-and-mortar businesses, commercial real estate is shifting to accommodate the changes in consumer spending behavior.

Despite the rise of eCommerce sales, warehouses and other logistics structures are still extremely important parts of commercial real estate. The increase in online business can be seen at large retailers like Walmart, who have invested heavily into “omnichannel” operations that encompass both eCommerce and traditional storefronts. Many smaller retailers also rely on delivery straight from their warehouses to customers’ homes for a competitive edge over online-only businesses; these companies will continue to make up an important part of commercial real estate in coming years. Even with increasing automation reducing the number of employees necessary for warehouse operations, demand will not decrease due to growing consumer demands for same-day or next-day deliveries.

The transportation industry, which includes both traditional trucking and public transit as well as the burgeoning autonomous vehicle industry, is another growing segment of commercial real estate. The shift from local “brick and mortar” businesses to eCommerce have led to a shift in demand for packing materials; while consumers once relied on brick-and-mortar stores for packaging materials like boxes, plastic bags, and bubble wrap, online consumers have shown a lower tolerance for shipping time in exchange for free shipping. This shift in consumer behavior has put downward pressure on prices for many packing materials. A box that would have cost $1 at a store might only be worth 50 cents when purchased online to the difference in packing time between the two scenarios; this decrease in price has led to lower profits for companies that rely on manufacturing or distributing packing materials.

One of the biggest recent shifts in commercial real estate is the rise of “on-demand” services like Cuber and Lyft, which are disrupting traditional models of public transportation. Before the recent widespread use of smartphones, most people relied on public transit systems; now, many people take advantage of apps like Uber to summon a ride with just a few taps on their personalized dashboard. Public transit agencies have attempted to mimic these apps by making their own smartphone apps for patrons to use, but these apps have struggled against providers who have more users due to being the first movers in the market. Many have begun offering options other than traditional public transit, such as bike-sharing programs or scooter rentals. Just as with the eCommerce industry, this shift has led to an increase in demand for commercial real estate related to transportation; while many cities have long had bus stations that serve commuters into and out of large cities, there are increasing demands for spaces that can be used by multiple modes of transportation.

The pace at which the world is consuming natural resources is quickly outpacing what the planet can sustainably produce; according to some estimates, industrialized countries will need two Earths’ worth of resources by 2050. The rise in online shopping combined with increasing consumer appetites for goods like bananas and coffee has sped up deforestation worldwide; according to one, 80% of all raw materials consumed globally are for manufacturing and packaging. As the world’s population continues to grow, the demand for resources will only increase; unless companies take steps to reduce their environmental impact, this could devastate future commercial real estate prices as consumer preferences shift away from unsustainable goods.

When thinking about the future of commercial real estate it is important to remember that these changes do not happen overnight. There have been disruptions throughout history that have shifted long-standing trends in business practices or expectations of consumers, from the advent of railways that led to cities built around train stations. In recent years there has been a focus on green initiatives and increasing sustainability in many industries, which can provide valuable insight into how consumers may be willing to redefine what is “normal” when it comes to their consumption habits.

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